Australians to take on role of tax collector when buying property from foreign residents

Going, going, gone: Australians who buy a property for more than $2.5 million from a foreign resident will be asked to withhold 10 per cent of the sale price and give that money to the ATO, under a proposal put forward by Treasury. Photo: Paul Jeffers

Feel like becoming a tax collector for the government?

Well, if you buy a property worth more than $2.5 million from a foreign resident then that is exactly what you will have to be if a Treasury proposal is adopted.

Treasury says it would like Australians to withhold 10 per cent of the sale price of a property from foreign residents and hand that money to the Australian Tax Office.

The measure will be a "collection mechanism" for the ATO to support the operation of the foreign resident capital gains tax regime.

And it will be up to you to establish whether the person you are buying the property from is a foreign resident and whether the transaction involves "Australian taxable property."

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It means that from July 1, 2016, a 10 per cent non-final withholding tax will apply to the sale, by foreign residents, of some properties worth more than $2.5 million. It means local buyers will have to become tax collectors and wrap their heads around complex tax rules to figure out whether they are buying relevant property from a foreign resident or not.

Treasury says the federal government says it welcome foreign investment in Australia, but sometimes foreigners will not pay the tax they are supposed to.

"There can be difficulties in collecting tax from foreign resident taxpayers," a Treasury discussion paper says.

"This usually occurs where no tax return has been lodged and the taxpayer has little or no other connection to Australia."

The plan is supposed to capture some of the revenue that is missed when foreign residents fail to pay the capital gains tax they owe after selling a property.

To reduce compliance costs, the proposed "withholding tax" will not apply to transactions of residential property worth less than $2.5 million, but that exemption is not intended to cover vacant land.